Operating cash flows
In one sentenceThe net cash generated by the business's main activity, such as collections from customers and payments to suppliers, employees and rent, during a given period.
Simply put
This is the most important section of the statement of cash flows, because it answers the question: does the business's daily work generate cash or consume it?
A business can show a profit in the income statement and still have weak operating cash flows, if its customers pay late or inventory piles up. That is why the two statements are read together.
Worked example
A restaurant collected 900,000 SAR from its sales during the year, and paid 550,000 SAR to suppliers, 200,000 SAR in salaries and 60,000 SAR in rent.
Received from customers900,000
Paid to suppliers(550,000)
Paid in salaries(200,000)
Paid in rent(60,000)
Net operating cash flow = 900,000 − 550,000 − 200,000 − 60,00090,000 SAR
Formula: Received from the main activity − paid for it
Don't confuse it with
Net profitNet profit is calculated on the accrual basis, and operating cash flow measures the cash that actually came in and went out.